Air Disasters Point Out Shortcomings in Chinese Legislation

So, in the case of an aircraft that has departed from within China and suffers an air crash in a State of destination which is a signatory country of either the Warsaw Convention or the Hague Protocol, the relevant convention shall apply to the compensation arising from the air accident.

The PRC, Civil Aviation Law (the Aviation Law) was promulgated on October 30 1995 and effective as of March 1 1996. The Aviation Law expressly introduces the concept of "international carriage" as it is used in the conventions, and thus the Chinese law also distinguishes between international and non-international carriage. For international flights to or from China, the conventions will prevail, and local rules will deal with non-international flights.

Liability Basis

The conventions adopt a presumed liability basis with respect to an air carrier's liability for passengers and baggage. The Aviation Law incorporates the provisions of the Guatemala Protocol 1971 and the Montreal Protocol No. 4 (signed in 1975), which adopt a "strict liability basis" with respect to the death of or injury to passengers, and loss of or damage to baggage. However, the law still allows the presumed liability basis to apply to claims arising from a delay of passenger flights.

Limits of Liability

For domestic carriage, Article 128 of the Aviation Law stipulates: "The limits of a carrier's liability in domestic air transport shall be formulated by the competent civil aviation authority under the State Council and put in force after being approved by the State Council.'" This is a delegated legislation clause. However, the Civil Aviation Authority (CAAC) has not formulated a new regulation as per the law on this matter but has let the pre- existing Provisional Regulations on Compensation to Passengers Killed or Injured in Domestic Air Transport (that entered into force January 1 1994) continue to apply. Under these regulations, an air carrier's liability for passengers is limited to Rmb70,000 (about US$8,400). For checked baggage, according to the revised Domestic Transport of Passengers and Baggage by China Civil Aviation Rules formulated by CAAC on February 28 1996, the limitation is Rmb50 (US$6) per kilo, and for carry-on baggage it is Rmb2,000 (US$240).

The air carrier's liability to passengers under the Warsaw Convention is 125,000 French francs; the Hague Protocol doubled this to 250,000 francs. The Aviation Law introduces the Special Drawing Right (SDR) contained in Montreal Additional Protocol No. 2, 1975, rather than French francs. Article 129 of the Aviation Law places an air carrier's limits on passenger liability for international flights at 16,600 SDR, on checked baggage at 17 SDR per kilo and carry-on baggage at 332 SDR for each passenger.

Therefore, under the framework of China's aviation legislation, there exist four regimes that govern carrier's limits for passenger liability: the Warsaw Convention, the Hague Protocol, the PRC, Aviation Law for international carriage and the CAAC rules for domestic carriage. Special attention should be paid when determining what is the governing law. Also, most carriers place their own limits on liability for flights destined for and departing from the United States at US$75,000.

Consequently, as far as international carriage is concerned, the conventions and the American route clauses will be applicable in most cases.

Conversion of the Limits on Liability into Local Currency

When the international conventions are applicable, how to convert French francs into local currency is a worldwide issue, and often gives rise to debate and litigation in the airline industry. Various courts in different countries have adopted their own ways to determine conversion rates, for example by using the current exchange rate of French francs, the market value of gold, the last official price of gold, etc. In China, there are no official documents stipulating the method of conversion of the French francs, or at least such kind provisions are not contained in public documents. This raises obvious problems when implementing the international conventions.

Towards Higher Limits on Liability

Over the past three decades, we've seen higher limits in air carriers' liability. Since the IATA Intercarrier Agreement of 1995, supplemented by the Measures to Implement the IATA Intercarrier Agreement , many airlines in developed countries have incorporated new limits into their conditions of carriage and increased the ceiling to 100,000 SDR. In 1998, EC regulations on air carrier liability entered into force. Airlines from Japan, meanwhile, lifted the limits voluntarily. The Montreal Convention came into being in 1999. All of these efforts aim to modernize the Warsaw system with higher limits, and ultimately aim to abolish the limits. When looking at China's liability limitation regulations, we find that the limit amount for domestic carriage (Rmb70,000) is much lower than the international level of 100,000 SDR, and is even lower than the original Warsaw Convention. China's calculation was based on the economic situation in 1993, but with fast GDP growth over the past decade and taking inflation into account the amount needs to be raised. A positive sign that things are changing is China Northern's increase of the limited amount for families of the May 7 crash victims killed to Rmb133,000 (US$16,000) per passenger; with additional compensation (for checked and carry-on baggage), the amount in total will be about Rmb194,000 (US$23,458). This roughly equals the level of the Hague Protocol and the amount for international flights under the Aviation Law. It is believed this compensation policy had been given approval by the CAAC.

Compensation for Damages to Third Parties on the Ground

Damages caused by aircraft to third parties on the ground fall under the scope of tort damages. China is not a signatory to the existing Rome Convention of 1952 nor the Montreal Protocol of 1978, but the Aviation Law incorporates some principles of these agreements. Article 189 of the law stipulates: "The law of the place where an act of tort occurred shall be applicable to indemnity for damage caused by a civil aircraft to third parties on the surface. The law of the location of the court which takes up the case shall be applicable to the indemnity for damage caused by civil aircraft over the high seas to third parties." This is consistent with provisions of Article 146 of the PRC, Civil Law General Principles. China has not promulgated any special rules governing this kind of damage caused by civil aircraft to third parties on the ground. The airlines will have to subject themselves to the various provisions contained in the Civil Law.

There are two points to be kept in mind. Firstly, the Aviation Law does not introduce the limitation regulations of the Rome Convention, in consequence the carriers might be faced with large unlimited claims. Secondly, though the law defines strictly the extent of the damage in accordance with the principles of the Rome Convention, the quantity of damages is not drawn up by any specified rules. The airlines liable will also have to take into account the local living standards, extent of damages, etc. which will vary from area to area. In addition, the compensation for consequential damages and punitive damages is very controversial. Currently, Shanghai judges are faced with this kind of challenge. On April 15 1999 an air freighter crashed near Shanghai Hong Qiao Airport, causing extensive damage to third parties on the ground, and destroyed a construction site of a new real estate project. The real estate company claimed compensatory and punitive damages of Rmb430 million (US$51,807,228), and alleged actual damages exceeded Rmb648,880,000